During the Asian Crisis that hit in 1997 in which the peso plunged from P26 per US dollar to P40 per US dollar by the middle of 1998, newspaper columnist Tom Smith wrote that “the current financial crises here in Asia is due primarily to nations having based their economies upon the dollar instead of trying to prosper on the strength of their own currency.”

Smith’s observation is a good case of an outsider looking in for he is a foreign national living in the Philippines. Now with this global crisis lurking in our midst, Smith’s statement all the more hits the mark as our present economic debacle is inescapably connected with the US economic slowdown.

At least during the Asian Crisis, the Philippines were the least hit since it had a bigger trade with the American market and the dollar was strong. The fall of the Japanese yen at that time reduced the exports of our un-manufactured items like bananas, shrimps, and other marine products of which Japan is a big market.

Basing our economy upon the dollar led to our greater dependency on exports. We have expanded our exports from the traditional cash crops to products made by small and medium scale industries such as semi-conductors, garments, and handicrafts. Likewise, we have expanded our export for labor thus yearly increasing the number of Filipino workers abroad. So if anything happens to our external market which is practically not under our control, we are at a quandary or loss.

Basing our economy upon the dollar makes our own currency vulnerable and unstable. A large depreciation of the peso takes a snowball effect on production and investment. Firms have been made technically insolvent, with bloated debts due to the higher exchange rate. The banks that are exposed to these firms are also vulnerable, causing uncertainty over the stability of the financial system and a crisis of confidence.

Widespread insolvency and financial uncertainty compels the banks to limit new lending by demanding high interest rates on loans. As a consequence of the tight credit, spending for investment by firms falls, and production falls. If they can make it, business firms have to retrench workers to cut production cost. Other businesses that cannot withstand the currency crisis simply have to close shop.

As production falls, creation of new jobs cannot be facilitated as old jobs have been dissolved. This would lead to an increase in the number of the unemployed. Side by side with the rise in unemployment is the increase in prices of commodities due to the devalued peso. Doris Dumlao (INQUIRER, 9/10/08) reported that “since the start of this year, the peso has depreciated by 11.8 percent against the US dollar.” Along with that trend, we have been struggling under a 17-year high inflation rate which has made life more difficult for many of us.

Indeed, basing our economy upon the dollar is being at the mercy of the world market. The problem with this situation is that we lack bargaining power in dealing with international trade. The most that we can do is to follow the current, and the latest flow is this global food and oil crisis.

We cannot gain bargaining power as long as our country is economically weak—its production low and its currency unstable. We have to start building from within, acquiring power from within. They call it self-reliance that brings about self-confidence. It applies to individuals. It applies to nations as well.